Over the past three decades, China has experienced remarkable economic development. The gross domestic product (GDP) grew from CNY 362,410 million in 1978 to CNY 13,687,590 million in 2004. China is one of the world’s largest economies and recipients of foreign direct investment. China has been successful in reducing poverty and improving key social indicators. However, income disparities have been rising rapidly. In the early 1990s, the top 10% of the population held 40% of savings in China. By 2005, the top 5% of the population own about 50% of the national savings. The economic and social developments have been accompanied by significant progress in legal development, although China still does not have the western style of rule of law. During the same period of time, the Chinese government has relied on taxation as its main source of revenue, used tax policy as a “leverage” in regulating economic and social activities. This paper examines the role of tax policy in China’s economic, social and legal development. It concludes that tax policy has played an important, but somewhat mixed, role in China’s economic development. Tax policy has not been effective in enhancing social development in terms of redistributing social income or encouraging socially-desirably activities. The relationship between legal development and tax policy is perhaps not as obvious. In China’s case, however, a case can be made that tax policy has had a positive impact on the development of a system of rule-by-law.